Harvard business article on Chief Human Resources officers (CHROs) covered the new research result which shows the potential of HR chiefs in decision making roles; becoming the key advisers for CEO’s, are now gaining popularity for leadership roles in the business world. (HBR, 2014) Filler, E. (Senior Client Partner in Korn Ferry) and Ulrich, worked together to study conducted in order to understand the importance of CHROs, they have looked several sets of data: Salaries, compensation of executive class (C-suite). Their findings show that CHROs are highly paid after the CEOs and COOs. Ulrich mentioned the reason why CHRO is a key personal to the firm, they found due to it is hard to find good CHROs. (HRB, 2014; Gorman, C. 2014) Figures 11, show that there is not much difference in thinking and leadership styles of CEOs and CHROs, infact CHROs are closer to CEOs than COOs, CFOs, CIOs or CMOs. Gorman, C. (2014) said it CEOs and CHROs are the different cuts of the same cloth.
This finding clearly shows that HR chiefs are in reality very close to the CEOs and very compulsory during the strategic thinking. Companies are discovering the importance of HR executives, and they are becoming the one of the best suited for leadership roles. HR leaders scored higher or similar to the CEOs level in all 14 aspects studied by Filler (See Figure 12), E. and Ulrich, D. 2014, they have skills of leadership (task focused, social, intellectual and participative), Thinking (Action-focused, flexible, complex, creative), and emotional competencies (ambiguity tolerance, composure, empathy, humility and confidence)
Figure 10 Thinking Styles by Executive Role Source: Gorman, C. 2014
HR specialist is the important part of all firms (global or local), in big firms, there is always specialist in the team who task is to design the selection process, knowing the different talent the firm needs, and training needed to reach the objectives set by the organization.
(Boxall, P. and Purcell, J. 2011) Today, there are many HR specialists are working for different firms, according to Boxall, P. and Purcell, (J. 2011) in alone UK by the year 2010, 90000 HR Specialists were working for 13000 different firms. The numbers show the importance that Human researchers are getting in big markets.
Figure 11 Leadership Styles by Executive Role Source: Gorman, C. 2014
Study by Peter and Waterman’s (1982) highlight the different themes, i.e. importance of the human side of enterprises, productivity (specifically American firms), a model of success (limited to American firms) and the importance of culture and leadership in the success of the firm. Guest (1990) mentioned in his study the identification of four different approaches to the management of human resources Traditional, Radical, Pluralist and Unitarist. Due to the focus is what should firm do get better result out of the deal where different geographical culture, managerial style and people from different background going to integrate at some level, in this researcher we chose to look only on Unitarist approach, which assume management of firm and workers has same interest.
This approach defines the HRM as theme where it tries to maximum use of the talents available inside the firm.
So the question arises, does HRM really help to solve the problems, e.g. Cultural difference, difference in management styles, executives leaving after the acquisition, what level of integration or autonomy should be done and etc. Evidence of study by the Guest (1991) suggests that HRM has failed to deliver the positive results. On the base of
his finding he blames more on inappropriate application of HRM than blaming the theory of HRM.
2.10 Due Diligence
Due diligence is an assessment of financial and business risks associated with a M&A. Due diligence is processed both parties should follow before moving further to sign or make contracts on deals. The timing to perform due diligence is very important, when to conduct, what should be reviewed and use the findings to make deal fruitful. Usually acquirer do the due diligence, when they find potential firm for M&A. Acquirer has to assess the potential candidates in every step until the deal is done, they have to assess if the deal is going to bring financial and market gain or expected set of goals from M&A.
This assessment can only be made the firm has exchanged the financial and operating information, this information is needed to determine the financial and operating benefits both firms can earn from each other when they collaborate. It is also important to see if those gains can earn without collaborating with each other in case to see if any particular deal is going to create any value for shareholders for both firms especially acquiring firms.
Firms do M&A mostly due to economy of scale and scope but most of the M&A are driven by the motivation to get the access to the customer base of the acquired firm. The due diligence process is a time consuming process, improper due diligence can lead a firm wasting their time, Firm have to wait to until they know if investing in merging or acquisition if worth and then proceed to due diligence phase. In due diligence one review the financial and legal risk is involved with the deal, a party (Acquirer) is interested to optimize the value from M&A. The following checklist if created by taking some of the important studies suggested things that need to be reviewed in due diligence.
Due diligence is described as an important step in the pre - planning stage in many M&A literatures, but firms still do not know what are the important things they have to do at this phase, still many important aspects are missing in many cases. (Clemente and Greenspan, 1998; Duncan and Mtar, 2006) Mistake in the gathering and mismanagement of any information mentioned in the table, will increase the risk involving in M&A deals, usually business do ignore many important information and unaware of the risk in terms
of negative results or getting unexpected results. To avoid this situation firm have to lay down the assumption they expect from merging and acquiring the business on their due diligence blue-print and see it fit with the present and future organizational goals.
Figure 12 Flow of Information from Due Diligence to Integration Process
In order to save time and have detail oriented due diligence process, both firm can follow the breakdown of process in three categories’ suggested in study on M&A of accounting firms by Joel, and Terrence, (2014).
The 50:50 success rate tells allot about most of the firms do not follow the structured framework, Bhatia (2007) presents the facts about how important it is in Information System (IS) due diligence to follow the structured framework. Based on these studies, we can also assume the same goes for the other industries. This thesis study also follows the breakdown of information and things suggested in studies, in an attempt to make the extensive core framework of due diligence applicable to many industries at a basic level.
Due Diligence:
Figure 13 Process of Due Diligence
Acquiring or merging Firms should not wait for an office visit to collect information, which can be collected by other mean of information sharing, than the physical presence, i.e., emails, telephone and internet conference, secondary data collection via published financial report, target firm website, all can be done without the physical presence of experts on target site. In case of cross-border M&A can be cost effective and help to be prepared before engaging in due diligence phase. M&A by accounting firms is mostly successful due to simply follow of procedure categories as above and information upfront enhances the chances of firm, capable to lay down the whole M&A strategy, better understanding and faith among employees and existing customers are developed.
Due diligence is the phase where firms can really find that whether they should continue to deal or walk away from it, the firm also can see what they need to do in order to omit the risk involved with continuing the deal. Due diligence is very information sensitive process which needs allot of expertise. Due diligence process time is part which cannot be predicted as this depends on the size of organization, locations and documents. Delak, B.
and Bajec, M., 2013 advocate, in the existence of a proper framework (Appendix.1) lead time can be reduced to a minimum. They come up with four phases (Preparation, On-site, Analysis and Decision) due diligence framework related to information system industry and a rough idea on how much time each phase consume. At each of these stages different activities are performed in numerical order, pre phase is also preparing for the
Due Diligence
next phase. Preparation at pre phases increases the chances to run effectively and speed up the process of deals and reduce the lead time in finalize the deals.
Detailed study on On-Site phase cover the fact that a successful due diligence only can be done by different expert visiting the site of firm potential for acquisition. Visit by different expert observe different part of the organization (People, Management, and compliance) and uncovers the truth related to compatibility of M&A of potential opportunities was shown in the document presented before going to visit and first phase of Due diligence.
Firms can identify the current value of operations and assets (tangible or intangible), where and how much they will need for investment in the near future after the call, it is a deal (assumption is that many firms may neglect to collect this information), knowing the weakness and strength of potential buy help acquiring or merging firm to calculate the real value they will get from M&A. Analyzing the data collected via emails, phone calls, personal meeting and on-site visits can find the similarities between two firms and things which need to improve in future to maximizing the value creation for shareholders of both firms.
Recent M&A researches are focusing on Human Resource Management (HRM) aspect (Love, 2000; Rafferty and Restubog, 2010; Teerikangas, 2012). Further Latukha and Panibratov (2013), investigate the positive correlation between HRM due diligence and success of M&A deal and present the empirical evidence.
Technology due diligence is not much researched topic, very few studies which approach tells the technological leverage can be achieved only by having a better understanding of technology due diligence. (Andriole, 2007; Delak, and Bajec, 2013) In many industries prior to finalizing the deal, due diligence assist to reduce the risk and create more value for technology investing shareholders. (Andriole, 2007; Delak and Bajec, 2013).
This paper advocates the need of basic due diligence framework, applicable universally in any business mergers and acquisitions activities. Highlighting the industry and field specific framework and its usefulness, how the availability of framework on critical stages of due-diligence adds the value of firms. Information provided by proper due diligence (Delak and Bajec, 2013) (See appendix 3.) becomes a guideline for the acquirer proceed or
not proceed for the deal. Due diligence process unable the firm to see the problem that they going to face after the merger and acquisition of their potential buyers. Seeing the problem prior to finalizing the deal help the firm to come up with the solution to improve the situation or omit the problem in future. By solving this problem may help firm to stratify the existing customer segment; create a sustainable business environment and value of investment of shareholders. Positive manager feedback, finding of a study in Framework Information System Due Diligence (FISDD) prove framework can become the reference to perform the Due Diligence not only information systems fields. (Delak and Bajec, 2013)
3 METHODOLOGY / EMPIRICAL RESEARCH
This chapter explains the empirical findings to the research questions and those methods are chosen to conduct this research, the qualitative research method is chosen for this research and build a case study on the Japanese market, know for its’ unique culture and for essential contributor in the world economy. Also, presents the supportive propositions possible to research in the future, In relation to the research questions and the prepositions, also, the inefficiency of previous research conducted on the effect of human resource, cultural issues and geographical aspects those have great influence on cross-border M&As. Explain how this case being studied and what form of data is collected. The research examines the M&A investments and aspects those are very essential to the success of cross-border M&A. Due to the nature of this research the case study approach was selected, allowing to have a fuller understanding of the context and process (Yin, 1994). Rather, testing any specific hypothesis, research will fully concentrate on one case study, allowing an in-depth insight into the M&A process in cross-border setting. Adopting the use of case study also provides dynamic events, and how different factors can influence the process over the time.